Banks are increasing their maximum loan to valuation ratios in a race to grow volumes – much to the concern of the Reserve Bank. Does this signal a return to 100% loans?
In a review of the stability of the financial system, the Reserve Bank noted that increasing competition is pushing banks to take more risks.
Over the past eight months, a number of lenders have announced credit policy changes, allowing maximum loan to valuation ratios of 95%.
The changes open the door to many more potential first-home buyers who are struggling to save a deposit.
But could we see a full-scale return to 100% loans? A percentage of potential homeowners would like to think so.
A recent survey of future first homebuyers by Mortgage Choice, uncovered that 6% of respondents intended to try and borrow the full amount of the house purchase.
The fact that one in every 17 or so first homebuyers-to-be expects to borrow the full purchase amount shows the lack of understanding some have about today’s mortgage market. 100 percent home loans no longer exist and possibly may never again,” said Kristy Sheppard, spokeswoman for Mortgage Choice.
“Luckily for those looking to put in only a 5% deposit, which was more than one fifth of our respondents, the recent heating up of competition between lenders has seen loan to value ratios rise. This development and others over the last month mean it is more likely their home loan applications will be approved.”
So appears that lenders are still looking for borrowers to have some skin in the game - which is good news for three reasons.
- Discipline
Saving for a deposit takes discipline and commitment – two invaluable skills when one undertakes the single biggest financial commitment of the life. Having those two things in place before you enter into a loan agreement will only help you in the long run.
- Circumstances can change
Australia fared the global economic crisis reasonably well and unemployment remains relatively low. But the global economy is still struggling. This might not affect your life, but it’s worth keeping in mind. As well, potential borrowers should recognize that their own personal circumstances can shift in the blink of an eye – the Queensland floods sadly demonstrated this.
- Unpredictable housing market
While the housing market appears to grow year on year, a certain level of uncertainty exists. If Australia is in the middle of a housing bubble, borrowers with 100% loans could end up owing more than the property is worth when it bursts.
